As growing number of wealthy individuals plan to invest in more family homes around the globe, Dubai is tipped as a preferred destination. ”The demand for very high-quality property is increasing because primarily there has never been an abundance of that type of asset,” explains Maria Morris, Associate Partner at Knight Frank. ”Our high-net-worth global clients coming into Dubai and those already here are looking for something that aligns with their global portfolios.”
Some 63 per cent of GCC-based high-net-worth individuals (HNWIs) were likely to invest into real estate globally this year, according to Cluttons Middle East’s Private Capital Survey Part II, with around 80 per cent having at least $1 million (Dh3.67 million) at their disposal. Dubai also emerges as a favourite destination for these investors.
Knight Frank’s The Wealth Report 2016, meanwhile, established that 24 per cent of the world’s ultrahigh-net-worth individuals (UHNWIs) were planning to allocate around a quarter of their assets to primary residences and secondary homes. Notably, Dubai figured fifth in the list of the top 10 cities these investors rated as highly important for the next decade, moving up from eighth in the past decade.
Morris says Dubai’s diversity of buyers is encouraging, highlighting first-quarter figures from the Dubai Land Department wherein 127 different nationalities invested in the emirate. ”Yes, the market is still dominated by UAE, Indian, Pakistani and British buyers, but our recent inquiries are coming from a number of international territories, including continental Europe and Africa. We have also witnessed an increase in interest from less traditional inflows, such as the US and Asia — China in particular,” she adds.
The top reason UHNWIs preferred investing in residential property was that it could be sold in the future. They also cited the asset’s reputation as a safe haven, which was particularly important to clients from Russia and the Commonwealth of Independent States (CIS), according to the Knight Frank report.
Al Barari, a nature-inspired luxury development, seems to confirm these sentiments. Although the developer attracts mainly buyers already living in the UAE and GCC, it also has HNWIs from abroad. ”We’ve had several buyers from Kazakhstan and Nigeria,” says Martyn Crook, CEO of Asset Management at Al Barari. ”Last year, due to currency depreciation and economic instability, we saw fewer HNWIs from Russia and CIS. However, we are starting to see refreshed interest from Russia in particular.”
Andrew Cleator, Luxury Sales Director at Luxhabitat, says affluent investors from Asia and Europe have been filling the gap, supporting Knight Frank’s findings that Asian UHNWIs were set to expand by 66 per cent and Europe’s by 27 per cent over the next decade. ”Recently we are experiencing increasing interest from the Americas, especially South America, which is very promising,” says Cleator.
Myles Bush, CEO of PH Real Estate, says there has bee a twofold growth in demand from countries with internal problems, such as Iraq, Iran, Pakistan and some in Africa.
”They are looking for a safe haven for their money, [and benefit from] capital appreciation,” he says.
Tax policies
However, Dubai isn’t the only investment haven around. It also has to compete with the likes of Singapore, Hong Kong and Shanghai, according to Knight Frank. But Bush points out that these countries are already established markets with tax policies. Moreover, these markets have generally reached a plateau. ”Dubai’s market is still heading north,” says Bush. ”We can look forward to a good decade.”
Cleator concurs: ”If you compare the real estate prices in Dubai with its major rivals, it still offers tremendous value with some amazing property and developments to offer.”
Cecilia Reinaldo, Managing Director of Fine & Country UAE, says ongoing government investment in infrastructure, tourism and real estate, along with a solid track record of delivering, positions the UAE strongly as an investment destination. ”The return on investment [ROI] of 7-10 per cent in the UAE is one of the highest in the world,” says Reinaldo.
Crook points out that other major cities offer much lower yields — 3-4 per cent in London and 2-3 per cent in Hong Kong.
The world’s affluent also cited tax regime changes in Europe, particularly London, and safety as major concerns, according to The Wealth report. ”We have seen a rise in Europeans making Al Barari their home,” says Crook. ”For decades, the UAE has attracted businesses and expatriates who want to get away from their home country’s tax regimes.”
Knight Frank’s report also points out that more women and children of affluent families are managing the family wealth. This represents a demographic that Crook says is attracted to Al Barari. ”More established families purchase homes in The Reserve and The Residences, while The Nest is ideal for smaller or younger families. Ashjar and Seventh Heaven cater to young couples and single men and women.”
Looking for luxury
”HNWIs tend to be attracted to large luxury mansions or lavish penthouses, but once they are established they’re more likely to also invest in off-plan developments, or buy-to-let properties,” says Cleator.
PH Properties sells anything from a Dh3-million home to mansions worth upwards of Dh60 million. According to Bush, Emirates Hills, Al Barari and Palm Jumeirah lead in terms of luxury family dwellings.
”We’ve also noticed a demand increase in Arabian Ranches, Meadows and the Lakes. While earlier a property sold on average within seven to eight weeks, now it is selling within three to four weeks,” says Bush. ”More and more HNWIs are becoming owners and amateur landlords. They are looking for either high rental yields or capital appreciation.”
Properties registering higher rental yields include one- and two-bedroom apartments in The Greens, Dubai Marina, Jumeirah Lakes Towers and Downtown Dubai. Areas that offer the best capital appreciation include the Meadows, Arabian Ranches, Green Community and Victory Heights, according to Bush. ”I believe properties in Arabian Ranches are undervalued,” he says. ”Wealthy investors are looking for those.”
While Bush believes the market has picked up — PH doubled it’s marketing spend in January and claims to have trebled its leads — the wealthy don’t just throw their money around either. ”Emirates Hills is pretty much recession-proof,” says Bush. ”The reason is that HNWIs are not in a rush to sell and have the waiting power to get what they want.”
Favoured assets
The Cluttons report says GCC HNWIs prefer single units in The Springs, followed by entire buildings in Bur Dubai and Deira. ”The market may look like it’s cash-led, but the mortgage caps have affected the market,” says Richard Paul, Director of Residential Valuations at Cluttons. ”A lot of [purchases in] Emirates Hills are financed through secured lending. People do come in and buy them in cash because they can get a good deal, but the next week they leverage them to get the money back out.”
Having said that, Paul says the luxury end of the market was still relatively active, with prices fluctuating very little, particularly for properties in the Palm Jumeirah, Polo Homes and Al Barari. He cautions though that sentiment buying still leads to price fluctuations.
”This has happened with the signature and garden villas on the Palm Jumeirah. It’s a young market; sentiment can dominate instead of fundamentals,” says Paul. ”But this is changing. With new controls such as the credit bureau, you won’t see [prices rising or falling] 20 per cent anymore, but a reaction based on fundamentals, which is more around 5 per cent.”
Morris says that at the top end of the property market, buyers are far more discerning. ”If they can’t find a property that meets [their requirements], they won’t invest. There is no urgency if they can’t tick all their boxes.” However, if the right asset is found, they tend to move quickly and even buy at a premium.
”We witnessed this at the Palm Jumeirah and Emirates Hills last year, with record-breaking prices being achieved,” she adds.
While some of the more favourable towers in Dubai Marina are also of interest, the Palm Jumeirah was going through a bit of a resurgence as several villas are either being modified or updated, or plots being combined, according to Morris.
”This enables our clients to buy an asset that matches their lifestyle, even if they use it only a few times a year as a second, third or fourth home to add to their global portfolio,” says Morris.
The cost of luxury
Properties under Dh5 million are still the ones moving the most becaues of better mortgage financing, according to Cecilia Reinaldo, Managing Director of at Fine and Country.
”Obviously, the ultra luxury villas on the Palm Jumeirah, as well penthouses in Downtown Dubai, are still of interest to many individuals looking for unique properties,” she says.
Developer Al Barari sold its The Reserve show villa for over Dh60 million last year. Luxhabitat recorded recent transactions in the Dh15 million-Dh20 million region for penthouses in Dubai Marina and Palm Jumeirah. It also transacted mansions in Emirates Hills, Dubai Hills and Palm Jumeirah with prices between Dh20 million and Dh70 million.
The most expensive homes on its books that are attracting interest are villas in Al Barari (Dh30 million-Dh50 million) and Palm Jumeirah (Dh40 million-Dh70 million), and Emirates Hills mansions (Dh100 million-Dh180 million).
Is there still room for more?
Dubai could see demand for luxury property expand further in the next several years, according to industry insiders, creating more room for growth and new developments in the segment. ”Dubai will experience a huge demand from luxury property buyers in the next decade,” says Andrew Cleator, Luxury Sales Director at Luxhabitat, adding that many of the emirate’s high-stakes projects are nearing completion.
Maria Morris, Associate Partner at Knight Frank, says new masterplan developments coming through, such as Dubai Hills and Dubai Creek Harbour, are helping create a diverse mix of products. ”There is certainly a gap in the market for well-designed, high-specification apartment schemes, as well as an opportunity to create uber-luxury units,” says Morris. ”Developers have started to be more thoughtful in their designs to meet the needs of the high-net-worth buyer. Keep an eye on the Palm Jumeirah over the course of the year, as there are some exiting, very high-end schemes to come online.”
While the market for luxury property remains healthy, Richard Paul, Director of Residential Valuations at Cluttons, says developers must keep supply in check. ”Launching a new luxury mansion scheme north of Dh15 million might struggle if you don’t limit the numbers,” says Paul. ”Having said that, mansions worth Dh75 million in Emirates Hills still sell. On average, mansions are priced Dh900-Dh1,000 per square foot.”
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